In October 2015, the Company entered into a 5-year lease for approximately 6,100 square feet of office space in Waltham, MA at an average annual rent of approximately $0.2 million. The Company took occupancy of this space in January 2016. For the twelve months ended December 31, 2017 and 2016, the Company recorded $0.2 million and 0.2 million, respectively of rent expense related to this facility. No expense was recorded in 2015.

On October 3, 2014, the Company entered into a 15-year lease for office space at 2 Gansevoort Street New York, NY 10014, at an average annual rent of $2.7 million. The Company took possession of this space in December 2015, and it became the Company’s principal executive office upon occupancy in the first half of 2016. Also, on October 3, 2014, the Company entered into Desk Share Agreements with each of OPPM and TGTX, to occupy 10% and 45%, respectively, of the New York, NY office space that requires them to pay their share of the average annual rent of $0.3 million and $1.1 million, respectively. These initial rent allocations will be adjusted periodically for each party based upon actual percentage of the office space occupied. Additionally, the Company has reserved the right to execute additional desk share agreements with other third parties and those arrangements will also affect the cost of the lease actually borne by the Company. The lease was executed to further the business strategy, which includes forming additional subsidiaries and/or affiliate companies. Mr. Weiss is Executive Chairman, Chief Executive Officer, President and a stockholder of TGTX. The lease is subject to early termination by the Company, or in circumstances including events of default, the landlord, and includes a five-year extension option in our favor. For the twelve months ended December 31, 2017, 2016 and 2015, the Company recorded $1.0 million, $1.3 million and $0.2 million, respectively of rent expense related to this facility

In December 2012, we assumed a lease from TSO Laboratories, Inc., a wholly owned subsidiary of Ovamed GmbH, for approximately 8,700 square feet of space in Woburn, MA for the purpose of establishing a manufacturing facility for TSO. The term of the lease ends February 28, 2018. The annual rent payment is approximately $0.1 million. In July 2017, the Company entered into an agreement with the landlord of this facility, whereby the Company returned the facility to the landlord.

In April 2013, the Company entered into a three-year lease for approximately 1,500 square feet of office space in New York, NY at an average annual rent of approximately $0.1 million. The Company commenced occupancy of this space in May 2013. In March 2014, the Company made the decision to close this New York, NY office and commenced marketing the facility for sub-lease. In April 2014, the Company entered into a sub-lease arrangement for this New York, NY office for the remaining term of the lease, and in December 2014, the sub-tenant returned the space. The lease expired in June 2016.

In June 2017 and July 2016, Journey extended its lease for one year for $2,295 square feet of office space in Scottsdale, AZ, at an annual rate of approximately $55,000 and $53,000. Journey took occupancy of this space in November 2014. For the twelve months ended December 31, 2017, 2016 and 2015, the Company recorded $0.1 million, $0.1 million and $0.1 million,, respectively of rent expense related to this facility

 

On October 27, 2017, Mustang entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation (“Landlord”). Pursuant to the terms of the lease agreement, Mustang agreed to lease 27,043 sf from the Landlord, located at 377 Plantation Street in Worcester, MA (the “Facility”), through November 2026, subject to additional extensions at Mustang’s option. Base rent, net of abatements of $0.6 million over the lease term, totals approximately $3.6 million, on a triple-net basis. Mustang plans to make improvements to the facility of approximately $3.5 million.

 

The terms of the lease also require that Mustang post an initial security deposit of $0.8 million, in the form of $0.5 million letter of credit and $0.3 million in cash, which shall increase to $1.3 million ($1.0 million letter of credit, $0.3 million in cash) when the Facility is fully occupied by Mustang. After the fifth lease year, the letter of credit obligation is subject to reduction.

 

The Facility is expected to be operational for the production of personalized CAR T therapies in 2018.

 

For the twelve months ended December 31, 2017 Mustang recorded $0.1 million of rent expense, no expense was recorded in 2016 or 2015 for this facility.

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Rent expense for the years ended December 31, 2017, 2016 and 2015 was $1.2 million, $1.8 million and $0.4 million, respectively.

Rental expense under all operating leases for the period from September 9, 2016 through September 30, 2016 and for the year ended September 30, 2017 was approximately $0.2 million and $4.3 million, respectively. Sublease income under all operating subleases for the period from September 9, 2016 through September 30, 2016 and for the year ended September 30, 2017 was approximately $8,200 and $0.2 million, respectively.

As of September 30, 2017, and 2016, National had outstanding three letters of credit, which have been issued in the maximum amount of $1.4 million and $0.4 million, respectively, as security for property leases, and are collateralized by the restricted cash as reflected in the statements of financial condition.

 

In accordance with its certificate of incorporation, bylaws and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance to address such claims. Pursuant to agreements with clinical trial sites, the Company provides indemnification to such sites in certain conditions.

 

In connection with the legal settlement, above, the Company delivered 200,000 Mustang common shares, held by the Company, to Tang. During the year ended December 31, 2017, Mustang recorded this transaction as a capital contribution from Fortress and a corresponding expense of approximately $2.0 million based upon the closing share price of Mustang shares as of the date of the Settlement Agreement. In addition to the share issuance Mustang paid, in November 2017, a $0.2 million cash settlement to Tang. The total settlement of $2.2 million, was recorded in general and administrative expenses on the Consolidated Statements of Operations.

 

Liabilities for potential losses from complaints, legal actions, government investigations and proceedings are established where management believes that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In making these decisions, management bases its judgments on its knowledge of the situations, consultations with legal counsel and its historical experience in resolving similar matters. In many lawsuits, arbitrations and regulatory proceedings, it is not possible to determine whether a liability has been incurred or to estimate the amount of that liability until the matter is close to resolution. However, accruals are reviewed regularly and are adjusted to reflect management’s estimates of the impact of developments, rulings, advice of counsel and any other information pertinent to a particular matter. Because of the inherent difficulty in predicting the ultimate outcome of legal and regulatory actions, management cannot predict with certainty the eventual loss or range of loss related to such matters. These amounts are included in accounts payable and other accrued expenses in the statements of financial condition. Awards ultimately paid, if any, may be covered by our errors and omissions insurance policy. While National will vigorously defend itself in these matters and will assert insurance coverage and indemnification to the maximum extent possible, there can be no assurance that such matters will not have a material adverse impact on our financial position, results of operations or cash flows. National has included in “Professional fees” litigation and FINRA related expenses of $0.2 million for the period from September 9, 2016 through September 30, 2016, and $1.5 million for the fiscal year ended September 30, 2017.